The Income Tax Appellate Tribunal (ITAT), Delhi Bench “A”, has deleted an addition of ₹15 lakh made under Section 69A of the Income Tax Act, 1961, holding that an Excel sheet recovered from a third party could not, without adequate investigation and corroborative evidence, establish that the alleged cash transaction belonged to the assessee.

The Bench comprising Anubhav Sharma (Judicial Member) and Sanjay Awasthi (Accountant Member) observed that the Assessing Officer (AO) failed to follow the cheque trail appearing in the very same Excel sheet, which could have established the identity of the actual beneficiary. The Tribunal remarked that reliance on the statutory presumption under Section 292C was legally untenable where the AO’s satisfaction appeared to be based on “half-baked enquiries.” 

During the search the investigators cloned the laptop of an accountant of the group. Analysis of the laptop revealed an Excel file containing details of amounts stated to have been received from one Rakesh Sharma through cash and cheque. 

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The Excel sheet reflected transactions aggregating to ₹1.65 crore. For the assessment year under consideration, 2018-19, it recorded a cash transaction of ₹15 lakh. Based on this material, a notice under Section 148 was issued on February 20, 2024, and the assessment was subsequently completed by adding ₹15 lakh under Section 69A. 

The assessee challenged the addition before the Commissioner of Income Tax (Appeals), contending that there was no live nexus between him and the seized Excel sheet. The CIT(A), however, rejected the contention, prompting an appeal before the ITAT. The assessee also challenged the AO’s assumption of jurisdiction and disputed the use of information recovered from a third party where ownership of the underlying transactions had not been established. 

A significant aspect of the case was that the Excel sheet did not merely record cash transactions. As reproduced on page 3 of the ITAT order, it listed several cash, cheque and RTGS transactions between November 2016 and June 2019, aggregating to ₹1.65 crore.

The entries included cash amounts of ₹50 lakh and ₹10 lakh in November 2016; several cheque transactions during April, June and September 2017; an RTGS entry; the disputed ₹15 lakh cash entry dated October 20, 2017; and another cash entry of ₹5 lakh in June 2019. 

This combination of cash and banking transactions ultimately became crucial to the Tribunal’s decision.

The assessee argued that none of the transactions recorded in the Excel sheet pertained to him and that there was no evidence showing that the alleged cash was actually paid to or received by him.

It was pointed out that although the Excel sheet also contained cheque transactions, the alleged cheque payments were not reflected in the assessee’s bank accounts. The AO, according to the assessee, had also failed to trace the ultimate recipient of those cheque amounts—an exercise that could have identified the person to whom the Excel sheet actually related. 

The assessee further submitted that the Excel sheet was found on Dilip Jha’s laptop and did not identify the recipient of the amounts or disclose the purpose behind the payments. No material recovered from the assessee himself corroborated the figures appearing in the spreadsheet. 

The assessee also questioned the CIT(A)’s reliance on Section 292C, arguing that the statutory presumption concerning ownership and knowledge of seized material operates in relation to the person from whose possession the material is recovered and could not automatically be invoked to fasten liability upon another person.

The department defended the addition and relied on the findings of the CIT(A). It argued that Dilip Jha was an accountant of the Divyansh Group and that the assessee was the founder of the group.

According to the department, since the Excel sheet was recovered from the accountant’s laptop, a sufficient nexus existed between the assessee and the transactions. It was further contended that Section 292C supported a presumption concerning material and documents recovered from the searched person. 

The Tribunal found that the Excel sheet did record transactions aggregating to ₹1.65 crore involving Rakesh Sharma. However, it noted that the exact relationship between the assessee and Rakesh Sharma had not been established.

The Tribunal identified the cheque transactions mentioned in the spreadsheet as the evidence that could potentially have connected the disputed cash payment with the assessee.

The Bench observed that if the cheque payments had been traced and shown to have been received by the assessee, it could have supported a probability that the cash and cheque transactions appearing together in the spreadsheet related to the same person. 

But that investigation was never undertaken.

The Tribunal expressed its dissatisfaction with this lapse, recording that, “with a sense of regret,” the AO had not followed the cheque payments to determine whether the assessee was actually their beneficiary. In the absence of such enquiry and investigation, the Bench agreed that no nexus had been established between the assessee and the impugned payments. 

The ITAT also strongly questioned the manner in which Section 292C had been invoked.

The Bench held that there had been an “unnecessary reliance on Section 292C” to place upon the assessee the burden of denying transactions contained in the third-party Excel sheet.

It considered this particularly significant because the recipient of the cheque payments could have been easily identified. Had those payments been traced to the assessee, the Revenue could then have sought to treat the cash transactions as part of a composite series of transactions.

Instead, the investigation stopped short of tracing the banking trail.

The Tribunal consequently observed: “The reliance on Section 292C of the Act is even otherwise legally untenable in this case since the satisfaction of the Ld. AO appears to be placed on half-baked enquiries.”

The Tribunal relied upon the Calcutta High Court’s decision in Ajanta Footcare (India) Private Limited, which discussed the nature of presumptions and referred to the Supreme Court ruling in P.R. Metrani v. CIT.

The authorities cited in the order explain that the expression “may presume” does not create an absolute or irrebuttable presumption. Rather, it leaves room for the concerned authority to determine, on the facts and evidence of a particular case, whether such a presumption should actually be drawn. 

The precedent reproduced by the Tribunal further emphasised that the legislature’s use of “may be presumed” leaves discretion with statutory authorities. It does not impose a mandatory obligation to presume a fact in the Revenue’s favour, particularly where the primary evidence necessary to connect the document with the assessee has itself not been established. 

The ITAT concluded that the department had failed to establish the foundational link between the Excel sheet and the assessee.

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